Email of the day (1)
Comment of the Day

July 18 2012

Commentary by David Fuller

Email of the day (1)

"Thought subscribers would be interested in this independent fundamental analysis of three of our key miner's quarter production reports done by the good people at Lincoln Indicators.

"With production reports being generally viewed as rear vision and the market sentiment punishing nearly all commodity producers at moment my feeling is this sentiment could become more short term fearful. Just checking chart facts when looking at the miners at near three year lows! My fear is also in their as I do hold all three!

"My thinking medium to long term is still positive on a contrary market upturn as long policy settings from the governments don't take to long to Act.

"Thanks for providing such a great service."

David Fuller's view Thank you for your kind words, your views, and the Lincoln Indicators report which others within the Collective may also find informative.

With the global economy still slowing, this remains a challenging environment for all miners. Our thinking is very much in line with your own summary. And while none of us enjoys seeing some of our holdings trading near range lows, unless we are still increasing those positions, I certainly would not dream of selling world class miners when they are fundamentally cheap. The time to consider selling is when miners or any other shares are so fashionable that they surge above their trend means, approximated by rising 200-day MAs.

We may not see a sustained improvement in the share prices of miners until China's economy has made the transition from slowdown to GDP expansion once again. Hopefully, that will occur later this year because China is incrementally increasing its economic stimulus. Meanwhile, attractive valuations, not least significant dividends for BHP and Rio, should cushion downside risk. FMG is a little more speculative, as you know, but reasonably high beta.

On a relative basis, the miners which are really hammered during a downturn, short of the occasional takeover bid, are juniors which may or may not have promising reserves but currently provide no earnings or dividends, and have burn rates. Their appeal is the prospect of potentially big recoveries when the outlook for this cyclical sector improves.

(See also Eoin's technical review on Monday.)

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